Simon Collins: Will advisers be hit by new approvals regime?

On 7 March the senior managers and certification regime went live for banks, building societies, insurance companies and credit unions. There has been much coverage of the changes and the rest of the financial services industry will also be subject to this regime from 2018.

Firms currently subject to the framework are working their way through phase two, which is the implementation of the regime applying to those individuals who could cause “significant harm” to consumers or the firm. The significant harm definition covers customer-facing individuals who require a qualification, that is, advisers including all those with CF30 regulatory permissions.

Under the regime, these individuals will have to be approved as fit and proper by the firm itself rather than the FCA, a process that has to be formally repeated on an annual basis.

As the rules only apply to individuals working at current in-scope firms (banks, building societies and insurers) there is widespread concern across the industry a two-tiered regime will exist for advisers, whereby those caught by the new regime will be subject to different approval processes than those who remain under the auspices of the approved persons regime and FCA statements of principle and code of practice for approved persons.

Analysis of how the regime will interact with other regulations has therefore been extensive. For example, the RDR required enhanced qualification and a need for a Statement of Professional Standing for advisers.

The FCA, while acknowledging the potential for regulatory inconsistency, does not believe there is a conflict between the senior managers regime and the RDR rules but it is yet to issue further guidance to firms in this area.

The FCA’s view is advisers across the industry will still be expected to demonstrate the same level of competence regardless of which rules they are subject to.

Firms will need to be able to identify and ensure all those giving retail investment advice are fit and proper and qualified to the minimum standards introduced by the RDR and they have the requisite professional accreditation.

So while advisers subject to the senior managers regime will be assessed by the firm as fit and proper, this assessment will still need to make a judgement on an individual’s ability to perform the role which will include any qualifications that individual has, whether they have undertaken training, possess a level of competence and a newly required assessment of their personal characteristics.

Some are even going so far as to say this will be a higher hurdle to jump as the onus is well and truly placed on firms to ensure their advisers are appropriate to perform the role. The repercussions of wrongly approving someone will therefore potentially carry a high price for the firm.

The FCA does, however, recognise there is an operational issue as advisers subject to the certification regime will no longer have an individual reference number, which may create problems when they obtain or seek to renew their SPS. The FCA has emphasised this administrative matter should not detract from the purpose behind both the senior managers regime and the RDR and the drive to improve standards across the industry.

All things being equal, these concerns should fall away when the new framework extends to the rest of the industry in 2018. In the meantime, the FCA is working with the accredited and professional bodies to facilitate a smooth transition. Watch this space.